BANKING GENERAL KNOWLEDGE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Which of the following limits the power of credit creation by Commercial Bank?
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Fiscal Policy
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Banking Loan
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Business Possession
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None of the above
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Explanation:
Detailed explanation-1: -Fiscal Policy limits the power of credit creation by Commercial Banks.
Detailed explanation-2: -Some of the limitations are: 1. Cash Reserve Ratio 2. Availability of Adequate and Proper Securities 3. Keeping of Reserve with the Central Bank 4.
Detailed explanation-3: -Excess reserves: The process of credit creation is based on the assumption that banks stick to the required reserve ratio fixed by the central bank. If banks keep more cash in reserves than the legal reserve requirements, their power to create credit is limited to that extent.
Detailed explanation-4: -The credit creation process of commercial banks is determined by the amount of initial deposits and the cash reserve ratio.
There is 1 question to complete.